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Sensemaking / Village savings and loans: a women-led movement for inclusive growth in Africa

More than 9 million villagers across 40 African countries are pooling their money and financial skills in small groups of independent savers and investors.

Africa has some of the fastest-growing economies in the world. One emerging solution behind their success is Village Savings and Loan Associations (VSLA) groups, now operating in 40 countries across the continent.

Over the past five years, more than nine million of Africans, primarily women, have joined VSLA groups.The model is different from the average microcredit model in that it is savings-led and completely self-managed, with members investing their own capital rather than borrowing from a financial institutions. VSLA groups enable impoverished households to become self-sufficient, making them less vulnerable to life shocks, and capable of investing in income-generating activities. What is more, these groups can be formed by people in remote rural areas who would otherwise go without any financial services.

So how does the VSLA model work?

A self-selected group of around 25 people deposit their savings in a group lockbox at weekly meetings. They use the funds that accumulate to finance small loans to each other at a determined interest rate, with each member receiving a pay-out, normally, at the end of the yearly cycle of saving. Typically, members can apply for loans on a monthly basis.

Villagers are given structured training by community-based trainers, or field officers, who are trained by agents promoting the model. Community trainers conduct a community needs assessment, select communities of intervention, and form VSLA groups according to community interest. Villagers learn how to run their own meetings, develop bylaws, elect officers and keep records.

Once members become skilled at the process, they often grow the program on their own by training other villagers.

The study conducted by Innovations for Poverty Action (IPA) in Mali found that saving groups helped villagers to reduce one of the vital aspects of poverty: vulnerability. It found that people who took part in Oxfam's Saving for Change (SfC) program had higher food security during the lean season.

According to Ashe, “As with any single strategy, this is not going to lift people out of poverty.” He adds, “But it’s simple, low-cost and resilient—and it can be carried out by normal NGOs and spread virally. And what’s most important is that development is truly in people’s own hands.”

Founded by CARE, humanitarian organization providing disaster relief and fighting global poverty, in Niger in 1991, VSLA was further supported by Bill and Melinda Gates Foundation with investment of $30 million in 2008. Since then, the model has been adapted by other organizations, such as Catholic Relief Services, Plan International, Freedom from Hunger and Oxfam America.

It is estimated that 10.5 million people are members of formally trained savings groups in around 65 countries worldwide. Together international NGOs seek to expand the groups to 50 million members by 2020.

“A giant informal economic system is emerging invisibly,” said Jeffrey Ashe, a micro-finance pioneer and co-author of the book In Their Own Hands: How Savings Groups Are Revolutionizing Development.

Development organizations are now exploring how to spread the model more cost-effectively. Some organizations, including CARE, have made a fee structure in which villagers cover part of the cost of their formal training.

Kim Wilson, a microfinance expert who is a Lecturer in International Business and Human Security at Tufts University asks, ‘’You have promoters who go out and form these groups. But have we looked at mass media, local radio or TV? Can we spread the word in a way that’s more efficient than we’ve been doing?’’

What’s next for this emerging movement?

The major development groups and funders, such as Plan and Barclay’s Bank,are now exploring how to build links between the informal savings groups and banks, aiming to create mobile banking services that work for both individuals and groups.

CARE is already working with banks and telecommunication companies to promote the financial history and skills of VSLA members, and to offer products and services to cater their needs. According to Lauren Hendricks, CARE’s Executive Director of Access Africa,“Savings groups are great, but they’re not full financial inclusion. They don’t provide all the products that people need when they need them.” She adds, “We’d like to see savings groups become a pathway for formal financial inclusion.”

But is this really a good idea? Who would be the winners and losers if VSLA groups were to be linked into other banking services? Hugh Allen, Chief Executive of VSL Associates and a former senior adviser for CARE who has played a key role spreading the VSLA model and tracking savings groups globally, finds this change frustrating. “In the fine old tradition of international NGOs,” he says, “if you find something that works, be creative and go mess it up.”